Financial risk rating in the automotive industry: A quantitative interval-based approach

Abstract

This study explores the role of rating in the financial risk management process within automobile manufacturing organizations. It examines the methodological approaches employed by automakers to evaluate financial risks, with a particular focus on liquidity, solvency, financial stability, business activity, and market risks. Building on existing techniques, the research introduces an interval-based risk assessment methodology that differentiates industry sectors and applies it to 22 leading automakers listed on international stock exchanges by capitalization. The study seeks to identify high-risk zones across the sector in relation to key components of financial condition, offering decision-makers a comprehensive view of industry-wide vulnerabilities. The scientific novelty lies in adopting a rating-based approach that integrates a detailed assessment of financial risks across the automotive industry, moving beyond traditional company-specific analyses. While operational risks are often addressed in terms of supply chain disruptions or production delays, this study emphasizes their financial consequences. Production stoppages, inefficiencies, safety incidents, and unexpected shocks such as natural disasters, labor strikes, or equipment breakdowns can significantly raise costs and erode revenues. By examining these interconnections, the study highlights the importance of contingency planning and supply chain diversification as tools for mitigating the financial effects of operational disruptions. Overall, the research provides a holistic framework for assessing financial and operational risks, offering valuable insights for investors, managers, and policymakers seeking to strengthen risk management practices in the automotive sector.